U.S.-Turkish Economic Relations in a New Era: Analysis and Recommendations for a Stronger Strategic Partnership

EXECUTIVE SUMMARY

During his visit to Turkey in April 2009, President Obama expressed his desire to see a more diversified and deepened U.S.-Turkey relations in the context of a novel “model partnership.” This signified the willingness to add new dimensions to bilateral ties, which have long been dictated by security concerns and interests. Strengthening economic ties beyond trade dominated by military merchandise has been a cardinal objective of the new mode of bilateral strategic engagement expressed in terms of the model partnership. In this context, the two governments launched the U.S.-Turkey Framework for Strategic Economic and Commercial Cooperation (FSECC), which entailed a new cabinet-level initiative to tackle challenges to enhanced economic relations with a more structured private sector involvement through a Business Council composed of representatives from both countries. Although late in coming, this shift of focus of bilateral relations to the economic domain is a significant and necessary action if one takes into account the recent developments and trends in the global political economy. The looming recession in Europe and the recent turmoil in the Middle East and North Africa have made the United States even more important as far as Turkey’s efforts to diversify its trade ties are concerned.

Turkish-American economic integration over the last 10 years has decreased as the U.S. market has been oriented toward other emerging economies thanks to changing international supply and global value chains. The lion’s share of the expansion of North-South trade went to East Asia, as China became a global manufacturing hub. Today, industrial production of the surplus economies in Asia is largely driven by U.S. demand. In contrast, while Turkey has succeeded in gaining access for its products to the European supply chains, it has failed to do so in the U.S. market. When President Bill Clinton visited Turkey in November 1999, the United States’ share of Turkish foreign trade was 8.2%. In 2010, this had fallen to less than 5.5%. Likewise, U.S. foreign direct investment in Turkey has remained far below potential.

In this context, U.S.-Turkish economic relations risk further marginalization in the near future if public and private stakeholders in both countries do not take concrete and innovative steps. This study examines the current state of trade and investment between the United States and Turkey, as well as the legal frameworks governing it and barriers/issues of concern, and looks at the global and multilateral context in which strengthening economic ties can be explored. It offers case studies of sectoral and individual firms’ success, from joint ventures to export promotion strategies. Finally, it offers recommendations by which trade and investment can be increased. Among these are:

• Rewriting the bilateral trade and investment framework
• Better aligning the two countries’ export promotion strategies
• Setting up new forums of dialogue and consultation for the U.S. and Turkish business communities
• Utilizing the forum of the G20 to produce mutually satisfactory solutions to economic issues of concern

Successful improvements in trade and investment between Turkey and the United States cannot be realized without the active participation of institutional and private-sector actors in both countries. The goal of this report is to provide one modest step in that direction, identifying challenges to and opportunities for the enhanced economic relations that would underpin a model partnership.